Daily, Mark Puch warily pedals his bicycle 13 miles from his home in Des Plaines, Ill. to the Primrose Candy Co. plant on Chicago’s near Northwest Side. Every other week, Mark’s older brother, Jeff, flies 7,806 miles from the Windy City to Hong Kong and then drives about another 40 miles to Qingxi, where the company’s Chinese facility is located.
The contrast in distances traveled provides a measure of how dramatically the business of manufacturing sugar confections in the United States has changed. It’s also a distinct departure from the original business founded by grandparents Frank and Mae Puch in 1928.
With $500 that he borrowed from his sister, and with skills he learned while working in a sweet shop, Frank realized the American dream and started up his own hard candy company, Mark, president of Primrose, explains.
“Everything was done by hand then, including the wrapping,” he says. “And for the first 40 years, Primrose was strictly a hard candy company.”
Today, Primrose – while still very much involved in hard candy production (40% of its revenues are tied to hard candy) – has its cooking kettles supplying other sugar confectionery segments, such as nutraceuticals (25%), chewy candies (25%) and panned items (10%).
Moreover, since 2004, the company has set up shop in China, culminating in the completion of a 75,000-sq.-ft. manufacturing facility two years ago. That’s not to say the company looks at leaving Chicago, the one-time candy capital of the world, anytime soon.
“We’re running three shifts, five days a week here,” says Jeff, chief operating officer, referring to the 130,000-sq.-ft. manufacturing and warehousing facility in the city.
Despite the departure of many candy companies from Chicago, Primrose has tenaciously held onto its niche as a contract and private-label manufacturer, gradually expanding into specialty categories.
“We’ve been fortunate to outlast the [local] competition,” adds Mark. Most importantly, it’s also been able to fend off foreign competition, despite having to deal with government subsidized (thus higher-priced) domestic sugar stocks and low-cost labor abroad.
As he explains, the impact of foreign sugar confectionery companies capitalizing on both of those factors had its origins in the 1970s. During that period, there were numerous family-owned candy operations.
Nevertheless, as Mark points out, “If you didn’t run your business right and reinvested in your operation, you couldn’t survive long. It was critical to become more efficient. Those that didn’t have the right amount of capital, the right kind of equipment, were bound to disappear.”
Frank Puch Jr., Mark’s and Jeff’s dad, fortunately, believed in automation.
“Whenever we got to a certain capacity, he would purchase new equipment,” Mark says.
The company also made a few acquisitions during the course of its 80-year history, key purchases that expanded its product range from hard candy to popcorn confections, chewy candies and panned products.
In 1968, Frank Jr. purchased the Hunkey Dorey brand of caramel corn, a popular snack featuring almonds and pecans. Ten years later it added the toffee and caramel-making assets of the Close Candy Co., followed shortly after by the purchase of a salt water taffy line and panning equipment for French burnt peanut and Boston Baked Beans from the Peanut Specialty Co. in 1980. The last purchase required the company to acquire an adjoining building near its present site in order to accommodate the new production lines.
In the mid-1980s, Primrose was approached to produce sugar-free candies, making it one of the pioneers of sugar-free sweets in the United States. Today, excluding panned items, 40% of Primrose’s candy output is sugar-free.
More importantly, however, that first sugar-free contract steered Primrose to specialize in contract and private-label manufacturing, a strategy that has contributed to its growth and success.
“We’re fairly conservative when it comes to spending money on marketing; that’s not our strength,” says Mark. “As a result, we found a different way to grow the company and focused on investments on processing and packaging equipment.”
Adds Jeff, “We’re not marketing people, but we know how to make candy. That’s why customers kept coming to us.”
Those investments proved necessary, particularly when the company was once again approached to venture into another new arena – nutraceutical/functional confections.
In the early 1990s, the brothers were approached to make chews containing calcium, vitamin C, multivitamins and joint supplements.
“At that time, there were only a handful of companies that had any expertise in making such items,” Mark says. “We, of course, could cook it and process it, but really didn’t have the necessary cGMP’s [current Good Manufacturing Practices, commonly used in the production of pharmaceuticals]. In accepting the contract, we went from being a candy company into becoming a nutraceutical operation.”
Today, as mentioned earlier, nutraceuticals represent 25% of the company’s revenues. It, together with sugar-free products, represents one of the fastest growing segments for the company.
Still, when it comes to tonnage, hard candy remains one of the company’s most critical components. Faced with increasingly aggressive competition from abroad, specifically, Mexico, South America and China, Mark and Jeff decided to investigate the possibility of having certain candies produced in China.
Thanks to Bob Boutin from Knechtel Laboratories, the brothers were steered toward a Chinese manufacturer anxious to get into hard candy manufacturing. After several preliminary conversations, Mark and Jeff signed an agreement to have hard candies produced in Qingxi. Unbeknownst to Jeff, it was the beginning of his great Chinese adventure.
In establishing a hard candy operation with the new Chinese partner, Jeff found himself visiting and securing local suppliers, setting up the production lines (Starlight mints and lollipops), training employees and supervising production.
“I might as well have started my own company,” he says.
The rationale behind the Chinese joint venture was to allow Primrose to compete effectively against other foreign confectionery companies in hard candy commodities, specifically Starlight mints, lollipops and other formed hard candies.
With a first shift under way, the brothers worked on securing contracts from their customers. Just as the company was getting under way to start a second shift in April 2006, news broke about the contamination of pet food produced in China with melamine, a chemical toxic in high doses.
“Almost immediately, some of our customers put contracts on hold,” Jeff explains.
The subsequent discovery of lead in toys produced in China for Mattel prompted the demise of many of those contracts.
At the same time, the drop off in volume prompted Primrose’s Chinese partner to review the original agreement. Subsequently, both parties came to the realization that – for a variety of reasons -- it was time to move on, thus dissolving the joint-venture.
Coincidentally, during this period, the landlord of Primrose’s Chinese partner revealed he was opening up a new industrial park, one that had a facility suitable for candy making. Having virtually installed the hard-candy operation single-handedly for their Chinese partner, Jeff believed the company could set up its own production site.
“I had gotten to know the local government official responsible for foreign businesses really well and established a great working relationship with him,” he explains.
After signing a lease in September 2006, Jeff begun the process of starting up a hard candy operation once again.
“We really didn’t get anything going until the middle of October that year,” he says. Nevertheless, by January 2007 we were producing.”
Within the 70,000 -sq.-ft. facility, 40,000 of which is dedicated to processing, the company has four cookers, two Starlight lines, two forming lines for the production of discs and barrels, and three high-speed lollipop lines.
As Jeff points out, “We needed 30 different licenses before we could become operational.” But thanks to “his guy,” as well as Jeff’s familiarity with local suppliers and businessmen, the company pulled off a record-breaking startup in less than three months.
“We purchased the lines that were installed in our previous partner’s facility and added some additional equipment,” he adds. Of course, this being Southern China, the facility also had a 30,000-sq.-ft. dormitory for its workers, all 120 of them.
“Yes, we provide food and housing for them,” he says, “but that’s very common in this region. In other areas where there are larger cities, you don’t find that as common.”
The push to go ahead with the establishment of Primrose’s facility coincided with the realization that not all customers had been put off by the pet food and Mattel scares from China.
That, coupled with the development of a new gift pack business linked directly to Chinese sourcing, also re-energized volume for the plant.
“In the past, we often shipped candy from our plant in Chicago to gift pack operations in China who would then ship back a variety of gift packs – tins, jars, boxes, etc. filled with our candy,” Jeff says.
“Now, with a facility producing candies in China, we’re able to work with those same gift packers and ship them the candy from our Qingxi facility. Because the packages are shipped in containers on cube basis versus volume, the candies are virtually shipped “for nothing,” Jeff adds.
As a result of this business and the gradual return of contract manufacturing, the Qingxi facility is gearing up to start a second shift. Both Mark and Jeff believe they also have opportunities to sell their product directly into the Chinese market, but are still exploring the best way to do so.
Still, Mark cautions manufacturers about establishing operations in China. As he points out, “It’s not easy doing business in China. The rules change on a monthly basis because they’re growing so fast.”
Jeff, who – during the past two years – has spent more than half of his time in China during that period, can attest to challenges related to operating in a foreign country, one that has an alphabet containing 50,000 characters.
“I can speak a bit of Chinese and can read pingying, which is the Anglicized version of the language, but that’s all,” he says. Now that the operation has been operating for nearly two years, he expects to trim his time in the country significantly.
And that’s because there are still niches on the home front that need tending. Consider the company’s acquisition of certain hard candy processing equipment that was auctioned off last year as a result of the Peerless shutdown.
Known for its high-end hard candy items, Peerless sold a large proportion of its product range to small retail confectioners. In picking up several of its processing lines, Primrose also was able to capture several key accounts. Those accounts, however, expected the same high-end quality from Primrose as they had received from Peerless.
“The coloring and shapes of their products was slightly different from ours,” Jeff says. In addition, not only did they produce in smaller volumes, but they used many more different flavors. It took us a couple of months to get the flavors and colors right.”
The acquisition of processing lines and subsequent customer accounts has made Primrose “a better company,” adds Mark.
“It made us change and adapt, with Peerless’ past customers holding us to a higher standard,” he adds.
Those higher standards have resulted in additional operating costs, everything ranging from extra ingredients to increased quality monitoring. But it’s also opened up new doors for the company, says Richard Griseto, v.p. of sales & marketing.
For example, this year the company will re-introduce a honey-filled hard candy piece known as the Queen Bee that uses only U.S. honey. Available in lemon, orange, apple, strawberry and pure honey flavors, the product reflects the high-end range of hard candies Peerless handled.
“It’s obviously a piece for a very specialized market,” admits Griseto. Yet, it’s one that Primrose would not have had access to without its involvement in the Peerless auction.
Griseto is also excited about the coming launch of caramel swirls by a major drug store chain during the coming winter holiday season. The caramel swirls, developed by Primrose, will come in three distinct segments: Fabulous Fall Caramel Swirls, available in pumpkin spice, caramel apple, spice cider, chocolate peanut butter and candy corn flavors; Yuletide Caramel Swirls, available in butter rum, chocolate peppermint, chocolate raspberry and egg nog varieties; and Exotic Caramel Coffee Swirl with mocha coffee, cinnamon coffee Irish cream coffee, hazelnut coffee, and French vanilla flavors.
The new caramels reflect the company’s ability to develop new items, despite its philosophy of primarily being a contract or private-label manufacturer.
“We’re constantly trying to develop new products,” Mark adds. “The difference is that we don’t spend money trying to brand them.”
Flavor, of course, plays a key role in new product development for Primrose.
“Our flavors have always been clean, crisp and right up front,” says Griseto. “That’s what’s kept us successful in many areas.”
Those areas continue to expand, as Primrose’s customers pursue the organic and natural foods markets.
“More and more of our customers are using natural flavors, with multiple customers using natural flavors that are not organic,” he adds.
And while Frank Sr. may have used natural flavors in his time to produce hard candies, the business of producing and selling sugar candies in America has become a much more challenging task for his grandsons.
Nevertheless, the Puch brothers expect the company to post solid single-digit sales gains this year, in the 5-7% range on estimated revenues of $30 million. The company has just built a new 12,000-sq.-ft warehouse near its Chicago plant. It also now has two fourth-generation Puchs in the business. Jeff’s daughters, Nicole and Michelle both joined the company after graduating college. Older daughter Nicole handles production scheduling while Michelle assists Mark in finance and administration.
Jeff also looks forward to the company implementing a new MRP (Manufacturing Resource Planning) computer system, which will improve tracking and traceability from the receiving of ingredients to the shipping of finished products.
It will also allow the company to get a better handle on all items produced and facilitate a culling process of those less profitable items.
As Mark notes, “Our goal isn’t to worry about top-line growth. We’re more concerned about bottom-line growth. We have enough critical mass to be successful. The goal is to manage it better.”
And that applies to wherever market conditions take them, be it on the near Northwest Side of Chicago or Qingxi in China.
At a glancePrimrose Candy Co.
Plants: Chicago (130,000 sq. ft.); Qingxi, China (70,000 sq. ft.)
Employees: 250 (Chicago); 120 (Qingxi, China)
Sales: $30 million (Candy Industry estimate)
Products: Hard candies, chewy candies, panned candies
Sales breakout: Hard candy – 40%, chewy candy – 25%, nutraceuticals – 25%, panned candies – 10%
Management team: Mark Puch, president; Jeff Puch, chief operating officer, Richard Griseto, v.p. of sales & marketing; Aloise Puch, human resources director; Faustino Pichardo, plant manager.